Los Angeles. People either love it our hate it. All the stereotypes and caricatures are overblown. And we’re left with a city with idyllic weather, major commerce, the media center of the world, and a great emerging technology scene. We have an abundance of ethnicities, culinary options, music and culture. Randy Newman said it best, “I love LA” (Worth a 2 minute watch for pure nostalgia. Go on, have a bit of fun down memory lane!). I was raised in NorCal (born in Philly – go Eagles!) so I feel I have an unbiased appreciation for BOTH Californias.
I was recently interviewed for an article that appeared in Fast Company titled, “Why you should start a business in LA.” If you’re interested in the topic it’s worth a read, but I thought I’d elaborate on the topic since it comes up all the time.
First, I’d like to quote (paraphrase) Brad Feld speaking at Twiistup in LA in 2009, “I keep hearing people in LA talking with a chip on their shoulders about building a tech business here relative to Silicon Valley. I have one message for you, ‘get over it!’ ” His message was that in 2010 great business can be built anywhere if there is a great team and the will to make it work.
This is especially true in LA, the second largest city in the country with a population if 16 million. We have universities like CalTech, UCLA, USC and many more. We have many seasoned entrepreneurs who have built successful companies here and made a lot of money for investors and themselves. But LA is not Silicon Valley and we don’t need to aspire to be so. We will never be Silicon Valley in the way that Toronto will never be Hollywood. But we have a great city for building technology companies.
If you decide to build a company in LA, here’s what you need to know:
1. Funding is different – In Silicon Valley you have mega venture capital funds and many of them. They not only have gotten bigger but they have an amazing track record of funding the biggest names in the sector: Cisco, Apple, Google, Facebook. As a result many funds are OK with big bets. It’s not uncommon for incredibly smart and talented Phd’s or CS majors from Stanford to raise $10 million on an early-stage “platform” that if it succeeds it will be huge.
LA generally doesn’t have an appetite for this kind of investment at early stages. LA investors are more pragmatic. We tend to do more $3 million “A” rounds and we look for companies that have an early monetization strategy. I like to repeat the mantra, “necessity is the mother of all invention,” meaning that because investors have this expectation you find entrepreneurs that focus on nearer term monetization. Never say never – GRP Partners is actually looking very closely at a company in its A round that is raising a large sum of money. I’m sure others have, too. But it’s more atypical for investors located in this market.
The result is that we’ve had a lot of innovation coming from LA in terms of monetization. The whole category of “sponsored search” came from a successful LA company, Overture. (my firm, GRP Partners, was an investor). LA produced Applied Semantics that created AdSense and was bought by Google. We were also an investor in the early local listing company, CitySearch – an LA company. LA was a leader in lead generation (LowerMyBills), comparison shopping (PriceGrabber, Shopzilla), social networking (MySpace … I know, I know – Facebook won – but it was still a big business). If we extend a bit North up the coast line we have many affiliate marketing innovators including ValueClick, Commission Junction and FastClick. They also produced GoToMeeting and CallWave. My messages a) it can be done b) these have produced tremendous financial results and c) these were all innovators in monetization.
Side note: LA seems to have had some success in mega deals led by private equity firms as evidenced by DemandMedia and Chris DeWolf’s latest company backed by more than $20 million in private equity.
2. Recruiting will be different – You can build a great management team in LA. You can find very talented technology executives. But let’s be honest with ourselves – it’s not Silicon Valley. You don’t have a pool of thousands of Google engineers to hire when they’re ready to leave the mother ship. You don’t have the founders of eBay, LinkedIn, Salesforce.com and Yahoo. You don’t. Get over it. But we do have great technology developers. You can build a team of 100+ people in LA without needing to hire outside of LA. If you want to scale to become a “huge” company you will find it difficult to scale to the level of the Valley sized companies. But if you grow to be that big it would be a very nice problem to deal with. DemandMedia has already scaled a tech team to a considerable size in Santa Monica.
But what you do have is more loyalty. You’re not in the grind of your staff being constantly approached by every other start-up within 10 miles. So it’s always a trade-off. You can hire a talented head of marketing, business development, technology and sales. If you want to hire very experienced product managers there are less of these than I would like. You will also struggle to hire an enterprise salesforce – but then again who does this these days anyways? I believe you can attract people to relocate to Los Angeles but it’s likely that they’ll come from locations other than Northern California.
3. Commuting – The freeways here are legendary for traffic. But the reality is that most people who work here in tech live close enough to their work to take surface streets. My commute, for example, from Santa Monica to Century City is less than 15 minutes each way and I never have to take the freeway. But the reality is that for some they live far from their offices and like any big city (maybe more so) the commute can be a bear. My biggest message is that for most this fear is overrated. For some, it’s a nightmare. Your main commuting challenge with be taking the Southwest bus up to SFO/SJC/OAK. Expect it. Entrepreneurs in LA spend a lot of time commuting up to the Valley. You need to for conferences, business development and often for sales. It’s a one hour flight all – this is not an issue. Just think of all the FourSquare checkins you can log at LAX
4. Los Angeles has a strategic asset : content creation skills – In order for the Internet to go mainstream you first needed the infrastructure to support it from networking equipment (Cisco, Juniper) to databases (Oracle) to search (Google) and more recently mobile devices (Apple). But ultimately we’re on the Internet to communicate, buy stuff, become informed and be entertained. All of these areas have still have a lot of growth and innovation left. Communications is being changed by people like Twitter, commerce by people like GroupOn, informed by people like DemandMedia and entertainment by people like Hulu. In these last two categories LA has as much of an advantage as any other market. In content creation we definitely have assets other markets don’t have. While nobody has yet “cracked the code” on production quality video over the Internet (YouTube won UGC video), there is a lot of innovation happening in LA from places like Eqal, Deca.TV, DemandMedia’s studios, Clicker, Filmaka and other initiatives. So if you’re out to create content businesses there is no better time and no better place than here.
5. The community has matured – The LA / Southern California market has many people who are now on their second and third companies. A great team from MySpace has created Gravity. Gil Elbaz from Applied Semantics has now created Factual. Zorik Gordon is tearing it up at ReachLocal. TechCoast Angels backed GreenDot should be a major IPO this year. Frank Addante has created Rubicon Project. Douglas Merrill, the former CIO of Google, is building his next company in LA. Scott Painter, founder of CarsDirect has created two new generation LA startups (Zag and TrueCar, both backed by GRP Partners).
Summary – there is a lot of talent here. We’re not all about the beach and sun – although we enjoy that, too. We have started to build initiatives like Launchpad LA to help bring this community together and make it easier for first time entrepreneurs. I will talk more about LaunchPad in my next post. Basically, it doesn’t suck living and working in LA. Come join us. And for those that are here – let’s stop comparing ourselves to Silicon Valley. In Brad’s words, “Get over it.” We have much to be proud of in our own right. And still much work to be done.
(Cross-posted @ Both Sides of the Table )